With last year’s presidential election so focused on jobs and the economy, the American public probably knows more about the nuances of the unemployment rate than they ever have before. One particular of the official unemployment rate that received attention last year is that the Labor Department counts someone as unemployed only if he or she is actively looking for employment. Other folks who, for whatever reason, aren’t searching for work are considered not in the labor force.

The ratio between those considered in the labor force and the total working-age population is known as the “labor-force-participation rate.” And the reason why the unemployment rate has been able to fall from more than 10% in 2009 to 7.6% today despite middling job growth is that more and more Americans are dropping out of the labor force altogether.

As you can see from the chart below, this decline in the labor-force-participation rate is a trend that’s been going on for many years now. The primary driver of the overall trend is the aging workforce — many of those dropping out are simply retiring at around the normal age. But the trend accelerated during the recession, suggesting that many more people dropped out of the workforce than otherwise would have if the economy were in better shape.

As the economy improves, however, should we expect to see the participation rate bounce back? According to new analysis from Macroeconomic Advisers, it’s not likely. They estimate that roughly 45% of the recent decline in labor-force participation is a result of a weak economy, and the rest because of demographic factors. But as the economy improves, the workforce is going to continue to age, meaning that by 2015, when the Federal Reserve expects the economy to be back near full employment, the participation rate will remain where it is today.

In one sense this is good news because the economy doesn’t need to produce as many jobs per month to see reductions in the unemployment rate. But on a deeper level, it’s evidence that the high labor-participation rates that helped spur economic growth from the 1970s through the 1990s is a thing of the past. To put it another way, our economy is going to have to produce more with fewer people going forward, which — all else being equal — will slow economic growth.

So just how big of an effect will a smaller workforce have on the economy? In 2011, Harvard University’s Program on the Global Demography of Aging published a paper that tried to understand this question. Logic suggests that a workforce that has to support fewer nonworking individuals will be wealthier overall, and the study bears out that hypothesis. In the paper, economists David E. Bloom, David Canning and Günther Fink estimated how high-income countries (most of which have aging populations) would have grown from the 1960 to 2005 period if they had experienced population growth similar to the projections for 2005 to 2050. According to the report, if a high-income country like the U.S. had a per-person income of $10,000 in 1960, that income grew to $34,600 under the population growth we actually experienced. On the other hand, if the 1960 to 2005 period experienced the sort of population growth that we’re expected to see through 2050, that income would have grown only to $25,500.

This huge difference underscores how important population growth and workforce participation is to a country’s economy. If there are more people working in a country, and if a higher percentage of those people are productive, the whole country will be richer. (This is one reason why economists tend to support policies that increase immigration.)

There are bright spots, however. First, as the economy moves away from manufacturing and toward less-physically-demanding services, workers will be able to work later in life, easing the downward pressure on the participation rate. Second, one should not lose sight of the fact that increased longevity is a good thing in and of itself. Economists care about economic growth only because it helps increase human welfare, but a longer life can help in that endeavor as well.

That being said, society will have to support these longer lives somehow, and part of the price we pay will most likely be slower economic growth.

Is that normal that people with a work can't no longer live with a familly ,think about when retired ,in Europe or USA ? On the other side wealthy people pay less taxes and sometime not at all ! Untill when do we have to accept such things ? Is that normal that countries like European or American go far away to help people in need when third world is growing at home with most of them from the country ? Only way to change this is to get money from wealthy who only complain and pay not a lot or nothing ? When a country is in danger people have to risk their life to defend freedom. If someone wealthy let the burden of debt on the other,on the weakest he will surely not risk his own life to defend the country.http://www.youtube.com/watch?v=noU5dRoPIX4

" increased longevity is a good thing in and of itself." WTF? Says who? As an old broad, I would say that increased longevity reduces productivity and is NOT a good thing! Too many of us elders think we are entitled to spend inordinate amounts of money and suck up obscene amounts of services to merely EXIST without purpose or productive function in society. Extending life spans without extending productivity for individuals is counter productive and benefits no one but big pharma and the for profit medical "system". I'm in my 70th year and I say it's time for all of us aging "baby boomers" to either get up and be productive or shut up and get out of the way of the "young 'uns' who need to craft their new reality/world!

I took early Social Security because I could not get a job. I have a doctorate, two masters, an IQ of 173 and incredible mental abilities, but I cannot get a job because I do not have two years of experience with the software du jour. Every good job out there now requires some kind of certificate which costs thousands of dollars to acquire. The job I had essentially does not exist any more due to the economy - management consulting for business process improvement. The so-called unemployment rate is calculated from State unemployment insurance figures, so it only counts those out of work looking for work, at least two new contacts every week, and does not count the long term unemployed who have given up looking or have exhausted local employers to no avail. Actually, the unemployment rate is of no use in policy formation, because employment is the last element of the economy to recover from a crash. What we need is more GDP growth, which requires increased spending, which this Congress has refused to do and which the private sector cannot do when GDP is flat. Is it too much to ask that Congress, which controls spending, know some economics, instead of sticking to the so-called principles they have which are pure nonsense? There will be no brisk economic recovery as long as the morons in the House keep standing on the brakes!

We have been constantly told that our economy is becoming more "Productive" , meaning, one would hope, that we are producing as much wealth with fewer workers., due to "efficiency". If that is true, what reason is there for thinking that there is any relationship at all between number of workers and production? Why should there be ? And how is the "Private Sector" at all responsible for providing "Jobs". ?

What no one is saying is this: we need higher employment because we don't have enough stuff. I think most of us agree we have plenty of stuff, at least in the US.

We seem to have two very serious problems:

1. Many people cannot earn what they need to live. Some posts above indicate people are given what they need via the government - and I'm setting that aside. I think we would all agree they cannot earn it.

2. Many of those people who cannot earn what they need are working very hard, or have high paying stills but cannot find employment with those skills (I am unconcerned about the details of how many of each of these you think there are - I'm sure it is a simple fact, but people will get sidetracked on this).

Now go back to the start: we have plenty of stuff - we don't need more.

My proposed solution is a second currency (totally digital) which can (legally, at least) buy only the necessities of life.

Concerned about the environment? Crime? Immigration? Cost of higher education? This idea addresses all these issues.

"The primary driver of the overall trend is the aging workforce — many of those dropping out are simply retiring at around the normal age."

That statement above is factually incorrect. If you take that exact chart and add a line for participation of the over-55 crowd (available in the same BLS data set), you'll see it runs opposite -- participation of over-55's is INCREASING, not decreasing as it they're retiring. The decreasing participation is coming from lower age groups.

The overall point of the article is valid, though. It's the first time in our history that this issue has needed as much attention as it's now beginning to get.

So many unquestioned asumptions are structured into these sorts of analyses. Among them, that "growth" is sustainable on a small planet and is generally good for most people and that somehow long-term job exportation can continue without lowering the American standard of living to that of, say, China's. The problem, as I see it, is that the only real driver of economic policy is profit for businesses. Highly profitable businesses lobby our representatives using their money and almost always get what they want. American people meanwhile watch their votes and their protests amount to almost nothing and so our society grows more divided along economic and class lines. If businesses are smart they themselves will need to arrest this trend else they run out of consumers. If voters are smart, they'll hold those they elect accountable. It will likely take a lot more time for either scenario to occur. Meanwhile we had all better stay nimble.

During my life time, making a living has been difficult. It has always been a matter of not having enough jobs to go around. Since the after burners of exporting of jobs got lit, it has become nearly impossible to find work.

I suppose we could try working together. Government, business, and industry seem to be absolutely dead set against that happening. Having more people either not able to find any income generating opportunities or those who have income, but inadequate to allow a living, cannot continue. What are the options? Most people have a will to survive. What are the options?

Having millions of people in college and building debt they may have no hope of ever recovering doesn't seem to be much of a solution. Debt is what cause most of the devastation we see.

Why should I work? To become well off and successful so Time can accuse me of white privledge? So I can be accused of supporting the patriarchy and having a war on woman? To pay for military weapons to kill Iranians, arm rebel revolutions, and kill Americans without a trial? To fund a corporate insurance monopoly over health care? So the next generation is taught a lot of political propaganda in public schools? To support the dollar so Bernanke can manipulate all the financial markets and put the lights out on the free market system? So the NSA can intercept and store all my data in Utah? Even if you have none of these moral or constitutional concerns, what I dont understand is why people people choose to waste their precious life working for someone elses interest in a country which wont let them starve or bleed out in the hospital room? For the iphones? If anything is required to get by is missing the politicians will pass a law to provide it

Ineptocracy
(in-ep-toc'-Ra-cy) - a system of government where the least capable to
lead are elected by the least capable of producing, and where the members
of society least likely to sustain themselves or succeed, are rewarded
with goods and services paid for by the confiscated wealth of a
diminishing number of producers.

It's sad to see capitalism fail like this. I remember all those 1950's educational films talking about how capitalism works for everybody. In the old films we were all in it together as Americans VS the world. How could they have foreseen the greed? Back then dividends were 3 percent of profits, the top home loan rate was 3 percent, and charging over 5 percent for credit was considered usury. It took one income to have a home with two cars and send the kids to college. All those tax breaks during the 1980's and 90's were used to automate factories and move jobs overseas. No patriotism anymore. No love for fellow Americans. Nothing but unbridled greed. Rome fell, and so will the US - history repeats itself. My advice to young people: move to Canada.

my oh my! Are you getting paid for writing this, Christopher ? I hope you are and I wish you a livable wage and benefits, but you are obviously 'of a certain age'. Prior to your birth, most jobs could be accomplished with a 6th grade education with some on the job training. This is still true, however, we are now a 'post-industrial' and a 'service industry' based economy. This translates into the present reality for the necessity of have an advanced degree to be a journalist or an MBA to get a temp job in a cubicle while driving a car made elsewhere while wearing a shirt sown in a sweatshop.

Pathetically, jobs average people performed at decent wages and benefits are gone. Labor participation rates reflect this. This is most assuredly true for aging workers. One is often better off applying for disability under social security, or subsisting on unemployment, or doing nothing at all rather than landing a minimum wage job.

We have "free traded" away the jobs an average American could obtain; raise a family on; go on an annual vacation; buy a house and car; and retire from.

It is not your fault, Christopher, we sold out to Reagan, Bush (both), Clinton, et al, long before you were of voting age. Decent jobs are gone. WalMart has eliminated 'greeters'. And bizarrely, common Americans admire and follow the lead of our worst enemies.

This article is pseudo economics 101. It completely fails to factor in automation which has made millions of job s go away and threatens millions more. These machines including smart robotic ones have revolutionized production eliminating incredible numbers of jobs. Some day in the not too distant future nearly all backbreaking monotonous jobs will be done by robots. Now we need an economy that factors this in to the equation and finds other things for people to do. it can be a bright beautiful world or one that is under the jackboot of the rich rulers who will suppress the large mass of displaced workers. A new economic order will have to arise if we are to be able to enjoy the fruits of this revolution.

It's July 22, 2013... our national economy could easily crash within six months if gasoline
prices go beyond 4 dollars per gallon. Currently, gasoline prices have risen, which HAS effectively restricted
how the poor and lower middle class workers with OLD vehicles travel to work,
grocery shopping and run errands, etc.

Both Democrat & Republican politicians have failed the
working class by rescinding or recanting Employee Labor Laws which allows BIG
Businesses to greatly benefit from the lack of protection, due the working class
for medical, sick, vacation, holiday and wage benefits. When BIG Businesses can
eliminate a department by reclassifying it with a new department/job title and
force an already member of their company to reapply for the same job, this is
WRONG. The politicians from both parties can enact law to protect this from happening.
Shame on both political parties for allowing BIG Businesses to reduce wages in
this manner. The term lay off should only apply if the job NO longer exists and
not by reclassification of a department or job title.

Hence, this false lay off practice should have politicians
up in arms enacting new employer labor laws making it a CRIME and ILLEGAL to
falsely eliminate a job or department title and offer a reclassified job as the
same job, even if they add one or several new job requirements, the job is overall
the same. Our Government sorely needs a new federal labor laws enacted to
PROTECT long term employees from this deceptive lay off practices by
unscrupulous employers. In addition to this new labor law... Employers can not
require a employee(s) to reapply for the 'same work' reclassified job or
re-titled department, since the employee is already a employee of said company,
the company must offer them that job without lost scaled wages earned by said
employee for their time in service to even a new company. They (upper management and CEOs) scheme behind closed doors to keep their salaries when they remain employed by the new company who just acquired the old company through a take over, purchase or merger. There is something wrong
with our politicians... politicians who side with unscrupulous big businesses
that practice laying off their employees falsely without just cause.
Politicians have become corrupt as unscrupulous businesses have become with
this deceptive loop hole against NON-UNION employees.

Yet, municipalities such as Detroit's CAN NOT themselves
reclassify Police & Fire department/job titles and lay off their employees
only later to inform them they have to reapply for the same jobs under a new
department/job titles. Where is no equal JUSTICE in our political system to
penalize employers, because it would penalize state & town governments. Tax
rates continue to go higher and higher for the lower middle & poor workers,
meanwhile the BIG Businesses have perfected a loop hole method of reducing
their employee's wages by merging or selling their company. Shame on ALL the corrupted politicians for allowing BIG
Business to conduct themselves in this shameful wage reduction method.

What about the impact of increased productivity? Fewer people required to do the same accounting tasks due to automation. And how about the increase in corporate mergers - mass layoffs of duplicate HR staff, management etc. Bet those factors had a large effect on the labor participation rate.

This information will be used unconscionably by the Right to promote their campaign against the Middle Class : They will shout the fact without giving the simple explanation of WHY it is happening : Standard R-W propaganda technique ! ! -- As with "want" rather than "can".

@chipgunter55 What are you complaining about?! The whole point of the "Industrial Revolution" for the last few hundred years was exactly to increase "Production" using fewer and fewer workers. Now with robots and AI, very few indeed. It's like winning the lottery. Now we have to figure out what to do with all that wealth. From the sound of your post, you think we should give it away to the "1%". Are you seriously suggesting that all this productivity is due to the "work" of the 1%?!

@babooph And the massive welfare programs no matter what you call them have created generations of people who will not work for any amount of money so they can take it away from those who work to give to those who will not. Welcome to the welfare state of mind.

@HungryChuckBisquirs don't forget that we common americans have also contributed to the moving of jobs away from this nation by refusing to buy anything made in America simply because it cost more than what came in from overseas. We like to blame it on someone else but when we rush to the "Walmarts" and buy cheaper so we can have more to spend on other items then it is our fault more so than the free trade agreements. Remember, Walmart sells what people are wanting to buy no matter where it is made.

Steve, It is important to realize that this is nothing new : The Industrial Revolution started in England in 1589 : The Stocking Frame -- Look it up. . The then Queen chased it out for fear that it would destroy jobs. . Now, 400 years later, the same refrain, despite unprecedented prosperity (on the average). . Yes, eventually people will have to have "something else" to do. . The Elephant in the Room is indeed equitable distribution -- but we can work it out if we only WILL ! ! . It is very, VERY bad news for Capital ! !

@gruendelbert That does, but it opens up new jobs. The bigger thing this will have an effect on is the economic growth rate - I suspect we will grow faster, due to productivity increases, even with a lower participation rate.

@jambu_Shambu Oh yea, and just LOOK at that labor participation rate during the 50's which all your glenn beck loving right-wingers point at as the time of real american heroism and true american values...WAY lower than it is now!

You just didn't bother reading the article and so you want to stand on your political podium, too bad you are nothing but a reflexive partisan hack.

Right...all Obama. Nothing to do with a rapidly aging population and the drop-off of unemployment benefits after one year meeting the rapid transition away from unskilled labor in the workforce in this country (meaning: structural realignment of the US economy towards skilled/educated labor jobs). All Obama, who has had the fewest laws passed under his administration than any other in recent memory.

@hermitman@willid3 Well, I wouldn't need a citation to say the growth rate of obesity in the country is much larger than all of the other countries in the world. We have yet to see the effects of the obesity epidemic in the USA, and may find willid3 right, though we may find him wrong. I do agree, "citation please."

@JacobWahlgren@hermitman@willid3 We've already seen it. it was the previous generation. The current generation is extremely healthy, I have seen no fat people in my es/ms/hs/college. there is only like 3 fat people per 1,000. you must live in a backwards state. the current generation has been educated on obesity, we are all fit and skinny.